446 Italy and the Euro - is divorce on the cards?

I am no economic analyst but it is pretty obvious that things are not going well. Il Sole 34 had a story a while back about how many companies did not get money due to them as VAT returns simply because the goverment needed to show more money in its accounts to avoid being even more severely reprimanded by the EU. In fact, many fear that with a goverment that introduced a law making "falso in bilancio" legal - i.e. encouraging "creative" forms of accounting the situation may be much worse than what analyst think.

I am not sure if something as drastic as an exit from the Euro is the answer though...especially after all the tears Italy shed to get into the Euro in the first place... clearly if a devalutation did happen house prices would be more attractive for outsiders but I would personally prefer that it did not come to that.

Yes, it is true that the properties favoured by the Brits etc are the ones that the locals don't want. Whereas we want ancient houses in the country or in ancient towns, the locals are much happier with a modern, concrete, air conditioned house in the contrada.

But, a parallel market cannot distort too far. If the ancient wreck gets to be way out of kilter with the convenient concrete house, all but the diehard are going to think twice.

And then there's a difference between tourism, which might well flourish if the relative cost of living goes down, but investing hard earned pounds in an uncertain market - and who knows what the knock on effects of being ejected from the Euro might be - is another matter all together.

I think that memories are short; anyone remember the UK property market in the early nineties where sellers were many, and buyers there were none (and as for lenders, well!)?

Not meaning to be gloomy, just trying to get a bit of a discussion going.

Personally I have always thought that the Euro was the craziest idea ever to come from our Brussels overlords. You cannot forge 25+ disparate economies into a single fiscal policy - different economies have different needs at different times- that's why foreign exchange rates and interest rataes fluctuate in the first place.

Still its here now (thankfully not here in the UK - anyone for a referendum?) but how it works out will be "interesting".

My comment about the UK property market was simply that just because prices spiral upwards doesn't mean that they can't just as easily spiral downwards as well. I don't have the exact figures to hand, but if you bought a house in 1910, you might have waited 40 years (or about 90 if it was a really big one) to get your money back. There are so many things that can go wrong.

Property speculation has become a national (and international) pastime, but it really is a fairly recent phenomenon. Remember one of the reasons why buying in Italy is so tricky, is that a lot of properties (especially the type that we like to buy) may not have actually been sold in a century, if ever.

I am just a little sceptical about the buy now before its too late mantra, pumped out by some.

Well I'm definitely no economist, but speaking personally I'd really love it if we adopted the Euro. It would make transactions with the Euro zone much easier and as far as I understand it the majority of UK trade is in the Euro zone. Personally as well, it would mean we no longer have to look for good currency conversion rates.

and with that pearl of wisdom (!) she bounds effortlessly into the saddle :)

Not true that majority of trade is with the eurozone. The headline figures are distorted because so many goods go in transit through the port of Rotterdam.

Living in the Eurozone, and enjoying the benefits of not having to echange money everytime I go somewhere (except the UK) I cannot really see the Euro failing across all the countries it is operative in. Referring to Italy in particular, if it is required I am sure someone somewhere will eventually put enough pressure on the government to return to Lira, but do not think they will have an easy time of it (convincing the government to change that is).

My only regret about the Euro is this: that governments, particularly the Irish (and I believe it happened in Italy too) did not provide for proper controls to prevent retailers and other businesses from hiking prices. We jumped from the 8th most expensive country to the 3rd most expensive country in the Eurozone within six months, a year later we were rated the most expensive country to live in within the Eurozone, and this largely because of a government that was too busy lining its pockets through private business deals (largely in property development) to ensure that the business community was not ripping its clientele off.

There's a very negative report in the Economist this week which spells out the state that Italy currently finds itself in. The problems, the report says, are spread widely across politics, business and the economy.

Moreover, it concludes that even if Silvio Berlusconi were to lose the general election next year, the opposition would be no better.

I wonder what Italians think. If there are any of you out there who look at this Forum, it would be nice to hear your views.

So France and Holland have both voted No to the constitution (though apparently for different reasons) and the Germans are holding "secret" meetings about ditching the Euro. 56% of Germans want their Deutschmark back.

Nothing, it seems, lasts forever......

Whilst ,i suppose, i can imagine that "someone" might find exiting the idea that a total collapse of the Italian economy might lead to "cheap houses" in this country.Personally i find this rather an abhorant prospective ( prospering from the demise of others etc) rather i would suggest they look for property in Egypt or Somalia where i'm sure one would find an old colonial house with land for the pool at a song (with flies).There is NO risk that Italy comes out of the euro system (any attempt to do so would make Argentina look desirable).Happy to see that at least the Irish republicans have some idea of what forging Europe is actually about (not a take it or leave it golf club).Nobody believes that Europe is yet "made" but it's instructive to see those peoples and nations who are nevertheless committed (in the long term) to the realization of the concept of the United states of Europe process in which the creation of a sole currency is just a stepping stone.Quite frankly better a half made Europe than a lackey nation to the united states of america......hope you enjoyed that...

The rumblings get louder daily.....from today's Telegraph:

"Italy's finance minister, Domenico Siniscalco, pleaded with fellow ministers over dinner in Luxembourg for more time to get a grip on his country's mushrooming deficit as the European Commission prepared to launch disciplinary proceedings today.

A leaked draft concludes that Italy's fiscal problems are not the result of "exceptional circumstances", clearing the way for punitive sanctions.

The action comes at a disastrous moment for Italy's government, which is already facing calls from the Northern League coalition partner to ditch the euro.

Robert Maroni, the welfare minister, said the euro had been "inadequate to face the slowdown in economic growth, loss of competitiveness and employment crisis".

Andrea Gibelli, the party's parliamentary leader, called for an uprising against "the bureaucratic, technocratic, bankers' Europe".

"The countries outside the eurozone are much better able to defend themselves against China, the Americans and market forces. The euro has not brought us advantages. It's done nothing to defend our companies and it's stopped governments taking initiatives," he said.

The prime minister, Silvio Berlusconi, has stopped short of questioning the euro, but attacked Brussels over the weekend for "excessive bureaucracy".

"There are too many laws, too many rules. In the face of growing euroscepticism we need to start realising that we have an economy to relaunch, and it's not by accident that we're stagnating in Europe while the rest of the world is pulling ahead," he said.

Mr Berlusconi said it was unthinkable that the EU should impose sanctions on Italy when half the eurozone's states were in breach of the Stability and Growth Pact, including France and Germany."

Italy will never go back to the Lira. The Lega Nord is the only party proposing to go back to the Lira and it is complete madness.

Paola

Why do people insist on quoting from the Telegraph, it is rabidly anti European in every way, I thought it was only read by Colonels in the diplomatic service in India, dreaming of "dear old Blighty" and drowning in their G&T's by 10am every day, are there really people out there who take it seriously ????????????????

Before euro, interest on loans were about 12%, now they're 3,2%
If we'd like to commit siucide we could go back to lira, but I don't think this will happen
The point is not euro, but good leadership: Berlusconi has been a failure, let's hope for the future.

italy and its failure to compete in the euro zone is nothing much to do with berlusconni ... italy entered into the euro with everyone knowing that they had disguised there massive fiscal problems to put it mildly.... to create the necessary figures to join... like any company in the world cretive accounting will out and so it has come about.... france and germany who now have similar problems have arrived at the point for two seperate reasons... germany took on east germany and most probably wishes it never had... and france continues with its overpriced social system and protectionism

... to lay the blame at the door of burlusconni is i think too simplistic... if prodi had been there it would have been worse ... the talk of leaving the euro is a clever way of taking most italians eyes off the real problems and is a popularist way of avoiding truth

problem one as we all get to know is that italy still runs a cash economy ... tax revenues are very low...

two ... as we all like to complain here of banks and service suppliers ... you soon get to realise that the banking system is fixed... no competition ..no incentive to work better... the service comapnies with monoplies much the same... no investment high costs... half the water available in italy is lost before it arrives at the consumer because it leaks out of the pipes .... and half the pipes still provide contaminated water

three as every one likes to argue with me about it i hesitate to bring it up... the crime syndicates... i have never said you will get shot on the streets.. its much more subtle and it will affect all of you buying here but more so in the regions under their control.... they have a turnover equivalent to several times the italian official gdp..... this money is dissapearing from the real economy... every time you want a hospital bed and it isnt available ... its their fault... your high electric bills... they will be somewhere behind the funding of a large capital project which has been payed for but never built... water pipes in regions that have been signed off as being upgraded and been payed for but no pipes changed... each year massive eu funding comes to italy and dissapears into their pockets

the northern league sees itself as the hard working more honest portion of italian life... resents the south... and more so the fact that tons of their taxes go into this criminal system.... they want out of italy and out of the euro.... it will not happen ... but if it did they would be much better off.. cannot be denied that the south is a drain on the whole country in that respect...

we still have also the old communist parties... still with very much there social spending budgets and government run centralised services... while much of the world has moved on to centralist politics italy still has its extremes... these are more often represented now in local regional goverments and the judiciary... you will find your regional and local councils to be one of the most costly and overstaffed areas off italian life ... they have just awarded themselves a double the inflation rate pay rise... they work very few hours... have no responsability or incentive to provide a proper service ... and at the end of quite a short working life ... i think they can retire at about fifty.... walk away with massive inflation proof pensions....

berlusconi had a chance to change it all in his first term... he had the majority to do it.... that he didnt make enough changes quickly enough is yes his fault.... now he has a reduced majority is more reliant on support from other parties to sustain his majority and has watered down most progressive ideas that might have helped pull italy into the 20th century... the 21 st would be too much of a leap... i would say it doesnt matter which party or leader is there as long as it is strong with a solid majority... at the moment to even decide a name for the league of central left parties has taken a year of fighting and soon after they came under one umbrella to fight the election it all came apart again....

so no italy cannot leave the euro... it would have died a long time ago without it...in the commercial sense.... i just hope they can elect a strong government next time around that will make some real changes.... its all here .... but there is an awful lot of weeding out to do and a lot of changes needed... not for us...but for those younger growing up who want to stay here and work here... its about time that italy managed a crisis without having to send whole generations abroad to find work in countries which have managed their own economies better

I think we are missing the point. Italy is not alone. Most of Eurozone is facing economic difficulties. The inference here that there is a casual connection between the euro and Italy’s problems may be attractive and convenient, but if we are to gain a fuller understanding of the problem, we really need to grasp the magnitude of such a connection. The real problem rests, I believe, in the way in which our politicians set the whole thing up. They expected to create monetary union before achieving political union, something that (for many reasons) would be realistically impossible to achieve.

The euro is just part of a complex model of much wider forces and it would be incorrect to conclude that the currency is the root cause of Italy’s current malaise, when in reality, inherent weaknesses already preceded the introduction of the euro.

It is an undeniable fact that Italy’s economy was, by the end of the 20th century, one of the largest and most successful in the world. However, problems already existed in the very heart of Italy’s political economy and fiscal structure before the euro was even introduced and implemented. Italy has weaknesses in her public services and public administration. To a large extent, these weaknesses have been compensated in he past by the entrepreneurial flair, dynamism and innovation of Italian SME’s. But, just as Icarus’ wings gave rise to the abandonment that eventually failed him, Italy’s paradox is that her greatest assets have (in addition to other external factors) contributed to her current problems.

Part of the problem stems from the uneven distribution between income and expenditure. Fiscal revenues have risen but the spiralling problem of tax evasion continues to place a greater burden on Italy’s economy. It goes without saying that no country can create wealth when taxpayers are expected to “subsidise” their economy.

To pick up on John’s point as far as North versus South is concerned, radical differences between the two regions have always existed. Most of the problems stem from politics and the legitimacy of southern political classes, the pattern of state spending and the encouragement of improper activities. The south’s indictment has nothing to do with the euro. Moreover, the black economy is not just confined to the south; it is widespread among some of Italy’s more prosperous regions.

My mother is originally from the Puglia and I recall, during my visits to Taranto as a boy, being greatly impressed by ITALSIDER’s vast steel producing plant on the outskirts of town. Despite many brave attempts to hold off global competition, Taranto’s main source of employment eventually succumbed, like the rest of Italy’s industrial districts, to cheaper foreign imports.

Whilst I would agree that many parts of the south are depressed areas and that the problem remains unresolved, I don’t think I would go so far as to say that the “south is a drain on the whole country” and that the north should get out of Italy and out of the euro. Such arguments are unconvincing. In any case, do we really want a “medieval” Italy all over again with separate states battling it out for supremacy?

I don’t know what the answer is, but a poor and inadequate system of governance; both in the private and public arenas must shoulder some of the responsibility. If we are ever to deal with these issues in a robust manner, we need to get rid of the primitive and antiquated systems and develop an environment within which the whole economy can flourish. This is by no means an easy undertaking. We will require vision, strong leadership, communication, cooperation, support and trust!

OK boyz...

I am not suggesting that Italy's problems are caused by the Euro - that would be facile - but they are exacerbated by a fundamentally flawed monetary union. The fate of the euro will not be sealed by the northern league, Mr B or any other individual, but by the financial markets and "events".

As to the rant against the Telegraph, I do read it daily, but I am not alone - it is the biggest selling non-tabloid in the country. And I don't regard myself as a gin-swilling Colonel Blimp........thank you.